Senate Banking Committee Hearing: The Iran-Libya Sanctions Act

October 30, 1997

SEN. D'AMATO: (Sounds gavel.) This morning the committee will examine whether foreign companies engaged in activities that are in violation of U.S. law and policy against terrorism and nuclear proliferation should receive financial support from U.S. government entities like the Export-Import Bank or enjoy the privilege of raising private capital in our financial markets.

On September 30th the Iranian National Company signed a contract for $2 billion with Total of France, Petronis (sp) of Malaysia, and Gazprom of Russia to develop Iran's South Paz (sp) oilfield. Gazprom, a Russian state-owned oil company and a principal in the development of Iran's oil and gas reserves, announced plans to raise $1 billion in the U.S. capital markets with the assistance of a major U.S. investment bank. In addition, Exim is prepared to guarantee commercial loans of up to $750 million to enable Gazprom to assist its work in the Russian gas and oil sector.

Iran is the foremost sponsor of international terrorism and threatens our national security and the interests of our allies. It's an outlaw in the family of civilized nations. I believe that it is absolutely unacceptable that the United States through the Exim Bank provide financing for this outlaw nation, a nation that will continue to expand its aggressive activities with the proceeds that come from economic development from its oil and gas industries.

Now, the connection between oil contracts and Iranian aggression is clear. And let me state for the record what the administration through Undersecretary of State Peter Tarnoff explained in November of 1995, when we were considering this legislation. He said, and I quote, "A straight line links Iran's oil income and its ability to sponsor terrorism, build weapons of mass destruction, and acquire sophisticated armaments. Any government or private company that helps Iran to expand its oil must accept that it is contributing to this menace."

That is this administration, our State Department, Mr. Tarnoff, speaking as a witness for the administration with regard to this matter.

Now, let's not kid ourselves. We understand that there are those commercial interests who put on the back shelf the national interest and security of this country and would have us be -- and turn a blind eye towards aggression, towards the terrorist activities which Iran has sponsored and continues to sponsor.

The Iranian, Libyan Sanctions Act was enacted specifically to prevent this from happening. It was enacted with the administration's full support. Now with this blatant violation, I believe the administration has a moral and legal responsibility to enforce the provisions. And the president has a number of options against Gazprom and against its partners, Total.

Dr. Henry Kissinger commented, in a recent article that appeared in a number of newspapers this week, and let me quote part of it with respect to the actions that have taken place. He says, "Foreign policy always comes down to choices. An effective counter-terrorist and counter-proliferation policy requires some sacrifices. Sometimes commercial interests must give way to broader security interests. U.S. leadership is essential to reach this trade-off with respect to Iran."

As a first step, all Export-Import financing for Gazprom should be stopped immediately. Now, I under that the Ex-Im has already approved financing for the sale of $152 million in equipment for compressor stations in Gazprom. Now, still under consideration are guarantees of another $186 million. I don't believe that this should be permitted to take place. If Gazprom is allowed to receive Ex-Im guarantees, then we are contributing to a growing Iranian menace.

In an attempt to stop terrorism, I've asked Senator McConnell, who is here with us today, chairman of the Senate Foreign Operations Committee, to restrict Ex-Im's authority, as it relates to guaranteeing credits to Gazprom. I want to thank Senator McConnell for his actions, for his concern and for his leadership in this important matter. We will hear from him as our lead-off witness, and I thank him for appearing here along with Senator Brownback.

Let me turn, just for a moment, to the questions raised by Gazprom's proposed billion-dollar bond offering. Should foreign companies engage in activities which violate U.S. laws and undermine our policies be allowed unrestricted access to our capital markets? Should Russian companies that are providing missile aid to Iran or financing gas deals with them be able to seek financing in our markets or activities which threaten our national security? Should the United States just sit back and allow Gazprom to do business as usual?

I don't believe so. Gazprom should not be entitled to do business on the basis that all is well and that we have an unrestricted free capital market, because the fact of the matter is that their conduct is in blatant violation of our law.

And our administration has a number of steps that it can take. The U.S. has a strong and solid tradition of free and open capital markets, which I support. But our markets must not be misused by rogue terrorists. And that's what the legislation has provided for. I don't believe that we should help finance their immoral activities against us and other civilized nations. The Iranian-Libyan Sanctions Act provides that the United States may impose, and indeed restrict U.S. financial institutions from making loans above $10 million to any of the sanctioned countries.

In view of recent developments, I believe it's time for Congress to revisit the Iranian Sanctions Libyan Act (sic) and examine whether companies like Gazprom should be denied access to our financial markets and whether U.S. commercial and investment banks should assist in their financing.

I hope that the administration takes the correct course, sanctioning each of these violators of the Iranian Libyan Sanctions Act to the fullest. As Dr. Kissinger wrote, and I quote again, "The Iranian embargo matters, not because Congress has legislated it, but because our national interest requires it." If we fail to take the initiative and to implement the law the way it was intended, then we will do our citizens an injustice. If this happens, history will judge us by our inaction.

Again, I want to thank Senator McConnell for being here, our lead-off witness, and Senator Brownback. I look forward to hearing from the president and chairman of the Export-Import Bank, James Harmon. I want to thank him for his cooperation, for being here -- and for our other witnesses. We will turn now to Senator McConnell.

SEN. MITCH MCCONNELL (R-KY): Actually, Mr. Chairman, the thanks goes to you for your leadership over the years in issues related to Iran and its efforts to export terrorism around the world. And to my good friend Senator Brownback, thanks to his initiative, as well. And I welcome this opportunity to appear this morning to review U.S. agency compliance with the Iran-Libya Sanctions Act.

Senator D'Amato, you legislation represents a balanced, reasonable and appropriately tough defense of U.S. national security interests. It is not a blunt instrument of force. It offers the president a sensible array of options designed to discourage corporate financial support for Iran's current principal export, which is terrorism.

Your bill established a 90-day period to review violations of restrictions on investments in Iran's energy sector. That review was triggered by the stunning announcement that Total, Gazprom and Petronas had joined in a $2-billion deal to develop Iran's South Pars- e gas field.

This morning, I want to focus my remarks on Gazprom's potential involvement, since it is an entity which enjoys substantial support from the Ex-Im Bank, an institution my Subcommittee on Foreign Operations oversees.

There's no question this deal strikes to the heart of your bill, Senator D'Amato. The proof is Tehran's reaction. According to the Iranian news agency, the agreement calls our bluff and represents a, quote, "moral victory because world public opinion, especially in Europe, has taken a firm line against the U.S., particularly with the extraterritorial business of the Act. This is the most valuable aspect of the deal for us." That's Tehran's reaction.

Mr. Chairman, let me emphasize that last point. Two billion dollars isn't enough for Iran, it's a victory over U.S. law, the direct attack of American interests that Tehran values.

The collective wisdom of Sunday's television pundits can't disregard or change a simple truth. For Tehran, terrorism is still the tool of choice, the U.S. and Europe are still the targets, agreements which enrich Tehran offer down payments to build the next Hezbollah car bomb, plot and execute another kidnapping. Thirty percent of the energy consortium planning to subsidize terrorism -- and this particular transaction is owned by Gazprom.

In 1994, the chairman of the U.S. Ex-Im Bank signed a memorandum of understanding with Gazprom's chairman to provide up to $750 million in guarantees of commercial loans for the purchase of U.S. equipment and services to improve Russian oil and gas fields. It is my understanding that $152 million has already been approved in compressor station equipment. I had understood $186 million in support for drilling and related equipment was also pending. Last night I learned an additional $426 million was pending. I must confess I was somewhat surprised at this last-minute disclosure of information. I had asked for and been provided with a loan status report a week ago which was apparently incomplete. In addition to these transactions, discussions are underway to use much of the balance for pipeline improvements essential to the export of Caspian oil.

We're talking about U.S. investors in Iran and Libya via Gazprom.

Gazprom is a centerpiece of Russian hard currency earning structure and is very closely linked to the old guard Russian leadership. It continues to be a major instrument in the Russian economic monopoly as the embargo on Turkmen gas illustrates so well. And I had the ambassador from Turkmenistan in my office just this week stating that again to me. It's also a bone of contention between the old guard and the young reformers in Russia who are trying to privatize the monolith. However, Gazprom is short on the cash it needs to get the South Pars-e project up and running. And in an act of sheer gall, the company is planning to get U.S. investors to pay for this by selling convertible bonds on Wall Street.

Though Gazprom's claims the funds will be raised and go towards other projects, the fact is that the income will free up cash for South Pars-e. This convertible bond as well as others planned in the amount of some $6 billion in 1998 will ensure that Gazprom is able to continue with impunity its activities, some of which pose serious threats to U.S. national security interests. Such bonds will also provide the company with new investors who will have a vested financial interest in opposing sanctions or international penalties in the future.

Essentially, the matter boils down to this: should American investors fund Iranian ballistic and nuclear missile development? And of course the answer is no. And yet that is essentially the deal that Gazprom will be offering to unsuspecting American investors when it launches its bond next month.

Now, I think we should review exactly what Iran has been up to recently and where this money is going to go towards, as we noted, the nuclear ambition that they have in Tehran, and as you noted, the terrorism that Iran continues to advocate and use as part of its foreign policy tool. But let's review just what that is.

Iran is a nation that uses terrorism as a foreign policy tool. It's dedicated to undermining the Middle East peace process, providing financial support to Hamas and the Islamic Jihad, funding and directing Hezbollah, which is wreaking death and destruction in Lebanon and rooting out Western influence in the gulf region, Central Asia and elsewhere with the spread of anti-Western radical fundamentalism.

That's what Iran is involved in today. And this is where some of this money would go to help it develop even further. And, of course, this deal is a clear contravention of the U.S. Iran-Libya Sanctions Act. Iran's oil and gas sectors are Iran's main source of wealth. Assisting these sectors, as I feel we'll do, will fill Iranian coffers.

Shouldn't American investors be aware that they might be investing in a company which is contravening U.S. laws? Should the U.S. government be financing the violation of our own laws? Again, the answer is clearly no, yet taxpayers dollars are going to underwrite guarantees of commercial loans for Gazprom. And as Senator McConnell, who has been a leader in this effort as well, has already noted about the agreement between Gazprom and Export-Import Bank, which I know you'll be hearing more from later.

Finally, if investment in Iran were not enough, it was announced at the end of last week that the Russian-Libyan Inter-governmental Commission had agreed on principle -- in principle to, quote, "participation by Russian organizations in carrying out a number of projects in Libya in the sphere of power industry, communications, transportation, oil and gas extraction and the construction of gas pipelines and other infrastructure facilities. Gazprom strikes again.

So where are our allies in this? The French and the Russians say our concern in this matter are exaggerated, and after all, they say, Iran is already selling enough oil to more than cover the cost of the missiles and missile technology it's buying from Russia. True. However, Iran cannot afford to develop and maintain the nuclear capability it is trying to acquire without new revenue streams, such as those gained from the South Pars deal. In fact, this deal has an added financial advantage for Iran. Much of the gas exploited in the South Pars field will go towards help Iran maintain an improve its oil production, thus helping Iran produce more oil and bring in yet more money.

The irony here is that the threat posed by a nuclear-capable Iran is more severe for our European allies even than for ourselves. And you've quoted extensively from Secretary Kissinger's Tuesday article in the Washington Post. But I want to read another quote of that, because it's along these same lines. Secretary Kissinger said -- and I thanked him for this piece when I saw him this morning -- he said this, quote, "Our European allies will be the first victims of the spread of Islamic fundamentalism and of the Iranian medium- and long- range missiles. As a nuclear power, Iran will in the long run prove far more threatening to Russia than to America. And if the Gulf blows up, our European allies will be the first to ask for military help and access to our energy supplies to avoid an economic catastrophe," end of quote.

Any money made in this venture will be blood money.

The time has come to provide full disclosure about the companies in which Americans will be investing their hard-earned money. We should not stand by and watch U.S. security firms, pension funds, insurance companies, corporations, personal investors and others provide unconditional cash to an enterprise that is engaging in activities that could compromise U.S. national security. U.S. investors should get the full story on Gazprom's activities before helping to finance Iran's nuclear arsenal. And companies like Gazprom, which engage in activities harmful to the United States, cannot and should not expect the privilege of raising funds in our markets.

Mr. Chairman, again, thank you very much for your leadership in the past, and currently, on this topic. I consider it one of a key present threat and danger to us. Thank you.

SEN. D'AMATO: I want to thank you.

Senator Faircloth, do you have any questions that you'd like to ask, or Senator Reed?

SEN. LAUCH FAIRCLOTH (R-NC): I do not have a question. I (have just ?) a brief statement.


Senator, we want to thank you. If you want to participate in the hearing, you're certainly welcome to join us. I'd be delighted to have you.

SEN. BROWNBACK: I may sit here for a little while, but then I've got another hearing to join.

SEN. D'AMATO: Why don't you join us, then?

SEN. BROWNBACK: Thank you.

SEN. D'AMATO: Very good.

Senator Faircloth.

SEN. FAIRCLOTH: Mr. Chairman, (I thank you ?) for calling this hearing. I have been troubled by, as has Senator Brownback, what I see happening in this situation. On the one hand, a Russian state-owned firm is insulting the U.S. by openly defying our sanctions laws against Iran. Then they come to Wall Street saying, "Can we use your deep pockets to help us finance this deal?" Well, Wall Streets deep pockets are simply the mutual funds and pension funds of this country. Why should America's small investors and retirees finance the development of Iran's natural gas reserves? And when it boils back down to it, that's exactly who's doing it.

When I see this kind of absurd things going on, it reminds me of the old phrase the Communists put in themselves: Give them enough rope and they'll hang themselves. And we're trying.

Why should we finance projects for our enemies? I cannot understand anybody with any common sense wanting to be part of this deal. I think Wall Street should say no to the deal, and if they do not, then I think we should block it by legislation.

Mr. Chairman, let me also add that this is also part of a bigger problem, that is the foreign influence in our securities market by governments and companies connected to government. They're issuing bonds left and right. Last week I introduced a bill to create an Office of National Security at the SEC to monitor this kind of bond offering. I am particularly concerned about China and companies that are directly connected to the Chinese government and the Chinese army. Billions of dollars worth of those bonds are flooding into our market. I plan to look at the Chinese aspect of this bond issue next week.

And I thank you, Mr. Chairman, for holding this hearing.

SEN. D'AMATO: Thank you, Senator.

We'll call our witnesses at this time. President and Chairman of the Export-Import Bank, Mr. James Harmon. Mr. Harmon? Ambassador William Ramsay, deputy assistant secretary of State for Energy Resources and Economic Sanctions. And Mr. Richard Newcomb, director of the Office of Foreign Assets Control from the Department of Treasury.

Gentlemen, I want to thank you for your participation. And, Mr. Harmon, I want to once again publicly thank you for the extraordinary efforts that you made in participating in our last hearing -- I guess hiring a plane at your own expense and flying back all night to make it; we deeply appreciate your cooperation with this committee. We'd be happy to hear from you.



Chairman and President, Export-Import Bank


MR. HARMON: Thank you, Mr. Chairman. Mr. Chairman, members of the committee, thank you for your invitation to appear at this hearing to discuss implementation of the Iran-Libya Sanctions. I will make an oral statement and submit my written statement for the record.

I am James Harmon, president and chairman of the Ex-Im Bank of the United States, the official export credit agency of the U.S. government. Ex-Im Bank is an independent agency which focuses solely on preserving and expanding jobs here in the United States. Ex-Im Bank does this by providing financing that makes it possible to sell U.S. exports in emerging markets where commercial financing is not available or when U.S. exports face foreign government-sponsored competition.

This hearing involves Ex-Im Bank because the denial of Ex-Im Bank financing is one of the sanctions that the secretary of State may impose if she determines that sanctionable activity under the Act has occurred.

Let me say first, I am concerned about the threats posed to our national security and the safety of our citizens by the spread of state-supported terrorists, and the proliferation of weapons of mass destruction. I applaud your efforts to keep this threat in the public eye.

In my statement today, I will briefly summarize the role and decision-making process of Ex-Im Bank. I will review Ex-Im Bank activity in Russia and the current status of transactions that have been brought to the bank in which Gazprom is the borrower. And lastly, I will review Ex-Im Bank's role under ILSA.

At the operational level, Ex-Im Bank is market driven. The market brings transactions to Ex-Im Bank for financing and we evaluate the transactions based on the creditworthiness of the borrower. Credit analysis is at the core of the bank's decision-making because of the legal requirement that credit can only be extended if the bank determines that there is a reasonable assurance of repayment.

Ex-Im Bank does not take into consideration foreign policy goals of the government in making its decisions on what exports to support. Ex-Im Bank is not a foreign policy agency and does not have the authority to approve or deny transactions based on their foreign policy import. The constitutional authority to formulate the nation's foreign policy rests with the president and the chief foreign policy adviser, the secretary of State.

While Ex-Im Bank is not a foreign policy agency, certain legislation gives the president the authority under certain circumstances to instruct Ex-Im Bank not to lend to stipulated countries or borrowers. One such law is ILSA. If the secretary of State determines, under authority delegated by the president, that there is a violation of the Act, one of the sanctions that she may impose is to bar Ex-Im Bank from authorizing any new financing for United States exports for the country or entity in question.

The past five years have been extremely challenging and rewarding for Ex-Im Bank in dealing with the former Soviet Union. It has been a text book case of balancing the competitive interest of exporters while devising new and creative solutions to protecting the taxpayer dollars. We have made great strides in helping U.S. exporters win markets and be competitive in the former Soviet Union.

We first opened in the Russian Federation in March 1992 on a sovereign risk basis. That is, we looked to the Russian government to back the financing we extended to purchases of U.S. goods and services. It became clear that reliance on sovereign guarantees would not be sufficient to enable U.S. exporters to reach their full potential in the Russian market.

Since Russia was rich in resources but had not yet been fully tapped, we approached the Russian Ministry of Fuel and Energy in May 1992 with the possibility of providing financing on a non-sovereign guaranteed basis for modernization of the oil sector. In lieu of government guarantees we agreed to look for assurance of the payment through the assignment of revenues generated by the export sale of existing production under long-term hard currency contracts. These revenues are deposited into offshore escrow accounts.

By July 1993 we were able to sign the Oil and Gas Framework Agreement -- OGFA -- with the Russian Ministry of Fuel and Energy, the Ministry of Finance and the central bank. The first transaction under OGFA was approved in July 1994, and subsequently we have approved a total of nine transactions, supporting more than $1 billion in U.S. exports. And the OGFA structure was proposed in a number of other sectors.

Today Exim Bank has almost $1.7 billion in export finance outstanding to Russia with a potential exposure of over $7.5 billion based on outstanding impending commitments and letters of interest.

Gazprom is Russia's natural gas production and distribution company. It is the world's largest natural gas company. Annually Gazprom transports 22 percent of the world's total production through a transportation network that includes 87,600 miles of pipeline and 234 compressor stations with 3,700 individual compressor units. Given the scale of its operation, Gazprom represents one of the largest if not the largest potential purchaser of natural gas equipment and services and heavy construction equipment.

Gaining access since the break-up of the Soviet Union to the Gazprom market for U.S. exports has not been a simple matter. In 1981 the U.S. government made a large Soviet-Western European gas pipeline the target of U.S. sanctions. For U.S. companies it meant the loss of a major market during that period.

U.S. manufacturers of heavy equipment, like Caterpillar, were shut out of the project at great economic loss to the companies. Japanese manufacturers of heavy equipment, like Komatsu, were elevated to international prominence. In the end, the pipeline was built anyway. But Gazprom has left a residue of antagonisms with the United States and, at the same time, created an established supplier relationship between Western European and Japanese exporters and Gazprom.

For example, in 1994 alone, SATCHI (sp), the Italian export credit agency, approved $1.6 billion in financing for gas turbines. And Hermes (sp), the German export credit agency, approved $550 million in support for gas processing plants. Ex-Im Bank and U.S. exporters had to overcome this history in order to build a successful relationship with Gazprom.

Since 1993, Ex-Im Bank's relationship with Gazprom has included the extension of a direct loan, the signing of a memorandum of understanding, and the approval of loan guarantees to finance the export of U.S. products. The first Gazprom transaction was approved in February 1993 and consisted of a direct loan, in the amount of $82 million, to support export of U.S.-made construction machinery. That loan was made with the sovereign guarantee of the Russian Federation. If Gazprom fails to promptly make payments required under this loan, Ex-Im Bank would look to the government of the Russian Federation to make the required payments. There is currently a balance of $49,200,000 outstanding on this loan.

On November 8th, 1994, Ex-Im Bank signed a memorandum of understanding with Gazprom to make possible a significant expansion of U.S. exports. The M.O.U. provides a provides a framework for guaranteeing loans of up to $750 million for Gazprom's purchase of U.S. equipment and services. The risks to Ex-Im Bank associated with financing under the M.O.U. are mitigated by a special security structure.

For each Ex-Im Bank financing, the proceeds of a Gazprom long-term natural gas contract will be paid into an off-shore escrow account. To date, one transaction under the MOU has been approved by the Ex-Im Bank. It is in the amount of $134,700,000, and it is to support the export of compressor controls.

In December 1996, Ex-Im Bank approved two preliminary commitments; one in the amount of $165 million for a horizontal drilling project involving 21 U.S. companies, and a second in the amount of $450 million for specialized industrial machinery.

Presently, there are no transactions ready to come to the board for a final decision concerning Gazprom.

Under the Act, it is the responsibility of the president to determine whether a violation of the law has occurred. The president has delegated this responsibility to the secretary of State. If the secretary determines that a sanctionable violation has taken place, she has a menu of sanctions from which to choose. One of the options that the secretary may choose is to order Ex-Im Bank not to improve any new export financing.

My understanding is that the State Department is currently investigating the specific facts of the reported agreement for Gazprom to participate in the development of the off-shore Iranian gas fields. When all of the necessary information is collected, the State Department will prepare a recommendation as to the appropriate course of action. Should the secretary of State determine that there has been a violation under the Act, and should she decide that the denial of future Ex-Im Bank financing for U.S. exports to Gazprom is the appropriate course of action, Ex-Im Bank will promptly and faithfully implement this order.

Mr. Chairman, this completes my prepared statement. I will respond to any questions that you or your committee may have.

SEN. D'AMATO: Thank you very much, Mr. Harmon.

Mr. Ramsay?



Deputy Assistant Secretary of State
for Energy Resources and Economic Sanctions


MR. RAMSAY: Thank you, Mr. Chairman, members of the committee. Thank you for your invitation to appear here today before this committee. On behalf of the State Department, I would like to make the following statement with regard to implementation of the Iran- Libya Sanctions Act, ILSA.

ILSA has a very clear objective: to change Iran's unacceptable international behavior --

SEN. D'AMATO: Mr. Ramsay, do you want to pull that microphone up closer to you?

MR. RAMSAY: Sure. Let me start over.

Thank you for your invitation to appear today before this committee. On behalf of the State Department, I would like to make the following statement with regard to implementation of the Iran- Libya Sanctions Act, ILSA.

ILSA has a very clear objective: to change Iran's unacceptable international behavior. I think it is accurate to say that no nation's behavior poses a greater threat to U.S. political and security interests than that of Iran. Iran's support for terrorism, its efforts to obtain weapons of mass destruction and the means to deliver them, and its efforts to disrupt the peace process in the Middle East are intolerable. Despite the recent attention given to the election of a new Iranian government, we have seen no evidence of change in Iranian practices.

We take very seriously our responsibility to implement this law. As you know, we are actively investigating two ILSA cases involving reports of foreign investments in two Iranian oil projects: South Pars-e, involving the French company Total, the Russian company Gazprom, and the Malaysian company Petronas; and Balal, involving the Canadian company Bow Valley and the Indonesian company Bakrie.

We have made no decisions yet whether these deals involve sanctionable activity. We are moving expeditiously to ensure that we have all the facts in both cases to enable us to make the right decision and apply the law accurately and correctly. We will take appropriate action once our deliberations are complete. Sanctions are a very real option if we determine that sanctionable activity has occurred.

I regret that I cannot say more about the South Pars-e and Balal cases at this time, but I can assure you we are vigorously pursuing our investigation. I have just returned from Paris and Moscow where I had the opportunity to explain fully the administration's determination to implement the law. I will soon travel to Kuala Lumpur, Jakarta and Ottawa for similar conversations and to develop a better understanding of these deals. We will provide more detailed briefings to the members of the Congress as developments progress.

We are not prepared to carry on business as usual with the Iranian regime, and we feel very strongly that our friends and allies should not do so, either. We have been working for years to develop a multilateral consensus on inhibiting Iran's support for international terrorism and acquisition of mass destruction -- weapons of mass destruction. These efforts have met with some success. Examples include the Wassenaar arrangement, the Missile Technology Control Regime, and the Nuclear Suppliers Group. Furthermore, we have been successive in significantly narrowing Russia's nuclear cooperation with Iran and are engaged in a serious high level effort to stop Russian cooperation with Iran's ballistic missile program.

But other countries have resisted trade and investment sanctions that imposed economic pressure on Iran. And even in terms of weapons of mass destruction and terrorism, we believe that more needs to be done. We therefore are committed to continue working with our European allies, with the Russians, and with other countries to build an effective multilateral coalition that would increase our cooperation to inhibit Iran's objectionable behavior. This has been a long-standing policy of the United States, and it is a step ILSA encourages us to take.

Thank you, Mr. Chairman.

SEN. D'AMATO: Mr. Ambassador, I want to thank you. I want to thank you for your appearance. I also want to thank you for -- you and Ambassador Eisenstat for having taken the time, and Ambassador Pickering, to bring those members of Congress up to date with the briefings which are of a very sensitive nature in regard to your efforts. And I appreciate that we cannot go into detail with respect to certain aspects of them. But I am heartened by your activity. I want you to know that.

MR. RAMSAY: Thank you, sir.

SEN. D'AMATO: Mr. Newcomb.



Director of the Office of Foreign Assets Control,
Department of Treasur


MR. NEWCOMB: Thank you, Mr. Chairman. Members of the committee, good morning. Thank you for your invitation to appear here today.

The Office of Foreign Assets Control is the Treasury Department office that administers economic sanctions and embargo programs against certain foreign countries, governments and groups to advance U.S. foreign policy and national security objectives. Performing our function, we rely principally on the broad authority granted to the president under the International Emergency Economic Powers Act, Trading With The Enemy Act, and related statutes. We also enforce a number of congressionally mandated programs, including certain actions against anti-terrorism under the Effective Death Penalty Act of 1996, affecting terrorism-supporting countries, and the Cohen-Feinstein Amendment affecting Burma. The Office of Foreign Assets Control may be called upon to assist administering available sanctions provided in the Iran-Libya Sanctions Act.

The president invokes authority contained in the International Emergency Economic Power Act, or IEEPA, by declaring a national emergency with respect to "an extraordinary or unusual threat arising from outside of the United States to the national security, foreign policy or economy of the United States."

Once invoked, this statute grants the president broad powers to deal with that threat.

Presidential emergency declarations are usually contained in an executive order, which also describes the sanctions and typically delegates the authority to the secretary of the Treasury to implement, in consultation with the State Department; "to issue rules and regulations and to enforce prohibitions contained in that order."

Our current programs include comprehensive asset freezes and/or trade embargoes against North Korea, Iran, Cuba, Iraq, Libya, certain terrorist groups and the Cali Cartel. We also enforce prohibitions on certain financial transfers, under the Anti-Terrorism Effective Death Penalty Act of 1996, against Syria and Sudan; new investment in Burma under the Cohen-Feinstein, as implemented under IEEPA; and the supply of petroleum or arms to the UNITA faction in Angola; in addition to certain residual blocking controls on Iran and the Federal Republic of Yugoslavia. We've also recently concluded past programs against South Africa, Vietnam, Cambodia, Panama, Haiti and others.

I would like to describe briefly the sanctions programs we now have in place against Iran.

In November 1979, in response to Iran's taking of U.S. hostages, threats to default on the billions of dollars of loans from U.S. banks, President Carter froze approximately $12 billion in Iranian assets. This blocking action immobilized the bulk of Iran's foreign- exchange reserves. This action, along with the onset of the Iran-Iraq war,and other pressures on Iran, resulted in the 1981 Algiers accords. This settlement resulted in freeing the U.S. hostages, the payment of outstanding loans to U.S. banks, the establishment of Iran's -- (inaudible) -- Claims Tribunal at The Hague to adjudicate claims, and Iranian (word inaudible) arising from the resolution -- from the revolutions. The tribunal's work is still ongoing and has resulted in the successful resolution of billions of dollars of U.S. claims.

In 1987, following Iranian attacks on neutral shipping in the Persian Gulf, and other aggressive actions, President Reagan imposed a ban on Iranian imports that continue to this day. In 1995, as a result of Iranian sponsorship of international terrorism and Iran's active pursuit of weapons of mass destruction, President Clinton issued two executive (orders ?). In March 1995, it prohibited U.S. persons from entering into "contracts for the financing or overall management or supervision in the development of petroleum resources located in Iran or over which Iran claims jurisdiction." And then, the Executive Order 12959, issued on May 6th, 1995, substantially broadened the 1987 sanctions.

The May 6th executive order imposed prohibitions on the "export of U.S. goods, technology and services; new investment in Iran; the re-exportation of certain goods, technology and services to Iran; the brokering and trading in goods or services of Iranian origin, and the facilitation of certain Iranian-related trade or investment." This effectively ended the U.S. commercial activity with respect to Iran.

October 19th of this year, the president signed Executive Order 13059 clarifying the earlier orders and confirming the prohibition on trade and investment activities with respect to Iran by U.S. persons, wherever located.

Should the Office of Foreign Assets Control be called upon to implement any of the specific sanctions identified in the Iran-Libya Sanctions Act, we stand ready to faithfully execute all responsibilities falling on us.

I would be pleased to answer any questions you have concerning our current restrictions. Thank you, Mr. Chairman.

SEN. D'AMATO: Thank you very much.

I'm going to ask my colleagues to permit me to yield my opening time for questions to Senator Brownback, inasmuch as he is going to preside in a few minutes. And so with your concurrence, I would recognize Senator Brownback.


SEN. SAM BROWNBACK (R-KS): Thank you very much. And thank you very much for the indulgence of my colleagues for letting me do this.

If I could, gentlemen -- and I'm sorry Mr. Ramsay has to leave -- can you -- you cannot take questions at all, Mr. Ramsay?

(No audible response.)

Well, then I don't know quite how we're going to do this to make these questions. But if I could, I've held three hearings -- we've held three hearings in the Senate Foreign Affairs Subcommittee on the Middle East, Near East on suppliers to Iran. And during that, it's been very illuminating about what's taking place; that they are -- within 18 months to three years will have missile capacity, regional missile capacity to reach within about 600 miles of the region; the Iranians will have that. They will, over the period of the next few years, they're trying to develop a nuclear capacity within that region. And this is basically uncontroverted.

The problem of it is, is that we've got so many people willing to supply into the region and we're not willing to take the aggressive enough action to deal with it. Mr. Harmon, I appreciate the position that you feel like you're placed in. You're not a foreign policy entity, you're dealing with economic issues. And I used to serve on the Ex-Im Bank advisory board for a couple of years.

But the point of it is here is we have a terrorist regime, a regime -- a state regime that's willing to use terrorism -- that's uncontroverted and that's U.S. stated position; and we have a proposal here through Gazprom that will put more money into this regime, and using our tools here of this government. And I would just ask you in all of that circumstance to say that -- and to look and see that this is not something we're going to be a part of, or finance, particularly given how it threatens us -- and here is a regime that is using terrorism.

You were stating a timetable that you're willing -- and will have the secretary of State be making that determination.

I hope that your board will also be reviewing that issue as well, maybe even on a nearer-term basis than the State Department reviews it.

MR. HARMON: Senator, thank you for your question.

I feel that the integrity of the mission of Exim Bank is very significant here because, as you know, our mission really is to support exports. And as a commercial policy agency it is to support U.S. exports that provide jobs and sustain jobs in the United States.

We are not a foreign policy agency. So it is really very difficult for me to respond to some of the foreign policy issues, because as I've said in the statement, I think in our case we must wait for, clearly, the State Department to act in this matter, and that the integrity of our mission as a commercial policy agency is essential for me to act in that way.

SEN. BROWNBACK: You would agree with me that you can only act in a legal manner.


SEN. BROWNBACK: And that if the Iran-Libyan Sanction Act applies here, that you could not be involved in this transaction -- legally.

MR. HARMON: Yes. If the president acts through his secretary of state to employ sanctions, we will follow the rule immediately, of course.

SEN. BROWNBACK: Okay. I just -- I hope the board will review this as well, because it seems to me that on its face, as circumstances present this, that your own legal counsel would on its face say this is an illegal transaction. And I'm not meaning to harass or berate you, but I am deeply concerned about Iran's capability that's developing. And if we don't go at this transaction now -- and Mr. Ramsay, I'm afraid you're just going to have to take this statement, I guess, if you're -- if you cannot testify. But I do not feel like the administration has done nearly enough given the prairie fire that's burning of Iran expanding and threatening in this region, and particularly going towards the suppliers of that ability that's fueling the prairie fire.

Now, I've traveled in the region. A number of people have the threatening nature that they have, the continued use of terrorism within that region. I hope you make this a front-and-center-piece issue in dealing with the Russian government, dealing with Gazprom, and dealing with our European allies, because I would wager that you probably read Secretary Kissinger's article as well and would in whole basically agree with that article, which means that we just are going to have to step up with more resolve in spite of the fact that it may hit us some as well in this process to stand up to this terrorism.

And Mr. Chairman, you and your colleagues have been very kind to allow me to have some of this time. I wish Mr. Ramsay were at liberty to be able to respond, because I think that'd be the only fair way to have it. But I'm going to continue to beat this drum, and I know you as chairman will as well.

Thank you.

SEN. D'AMATO: Well, senator, I want to thank you for your vigilance. I think it is important that, what you have put in the record, as it relates to why members of the Congress who have had an opportunity to examine as you have with specificity just how far advanced the Iranians are and where they're headed with respect to their development of missile technology, the delivery capabilities, and nuclear systems. And, indeed, I think we should again pay some heed to what the administration has testified to in the past that is uncontroverted.

"A straight line links Iran's oil income and its ability to sponsor terrorism, build weapons of mass destruction, and acquire sophisticated armaments. Any government or private company that helps Iran to expand its oil production must accept that it is contributing to this menace." That is a statement by the former Undersecretary of State Mr. Tarnoff to this committee in 1995, November of 1995. I believe it is more accurate today than it was at that point in time.

So this is not intended to berate you, Mr. Harmon. This is put into the record, what the facts are. You are limited. You have to wait for the president through his designee, the State Department, to make a determination. I'm going to turn to my other colleagues before I make some observations.

Senator Reed.

SEN. JACK REED (D-RI): Thank you, Mr. Chairman.

Just a point of clarification, Mr. Harmon. If the president through the secretary of state determines that the act has been violated, my understanding is that he must choose two -- at least two of six sanctions? Though there is a possibility that disabling the Exim Bank might not be one of the choices the president chose. Is that true?

MR. HARMON: I would not consider myself an expert on the subject of the various options he may have, and I only am familiar with the impact on Ex-Im Bank. But I believe that you're correct.

SEN. REED: One of the issues that I have -- and I think Mr. Ramsay might be the best one to respond, but apparently he can't -- is that --

SEN. D'AMATO: I think -- if I might. Mr. Ambassador, I would appreciate your sitting there. There are certain questions you can't ask. We're not going to get into those areas which -- and if we do -- which go into your negotiations, et cetera, we understood that that is something we would not raise because of the sensitivity. But certainly, as it relates to various aspects of the Act, if you -- I think you can testify to.

SEN. REED: Mr. Chairman, it's not my intent to enter areas which --

SEN. D'AMATO: No, I understand that. And indeed, if we hit an area that Mr. Ramsay cannot speak to -- and I don't think anybody's going to attempt to do that in terms of what you've said to who and what their responses have been, et cetera. We do not intend -- I indicated that to the secretary that we would not engage in that kind of open dialogue.

SEN. REED: Thank you, Mr. Chairman.

Mr. Ramsay, it just seems to me -- what categories or issues are still outstanding before you could make a determination that the Act has been violated? If that's something that you could respond to.

MR. RAMSAY: Well, sir, I guess that begins to go straight to the heart of the issue. That's -- what I'm about at this point in time is trying to determine that we're not dealing with press reports, that we're dealing with a real deal; that we can corroborate the deal, the nature of the deal, the extent of it, involvement, the understandings of the government; the fact that everybody is aware of the Act, the implications of the Act, the sanctions under the Act, obligations of the president to implement the Act, and make sure there is no misunderstanding anywhere about what this is about, nor how committed we are to changing Iran's behavior. This is what it's about.

SEN. REED: Okay. When do you conceive that those investigations and deliberations would be concluded? Do you have an idea? MR. RAMSAY: Sir, I'd be speculating at that point. I'm getting out to these countries as quickly as I can, and I am feeding that into the process. But it is -- it's something that we have to take very seriously because our decisions are going to have significant impacts on a number of things. But I would be speculating. There isn't a statutory limit, but I believe there's a practical limit, and we are moving with all dispatch.

SEN. REED: The sanctions that would be proposed, they would not be exclusively directed at the Russian company or the Russian partners. Presumably you're looking at consequences for both the French and the Malaysians?

MR. RAMSAY: We are looking at all five countries and companies.

We have two separate issues before us and we are not looking differentially -- they are different places and we have different relations with each of them but we are going at them all but we are going at them all equitably.

SEN. REED: Going back to Mr. Harmon, you have a memorandum of understanding with the Russians in this particular entity dating back several years. If there is a finding that the proposed investment in Iran violates the act and you must terminate your involvement with them, what would be the consequences under the memorandum of understanding if you essentially say we can't provide the credits or the support?

MR. HARMON: Yeah, we could not go forward in any transaction that would come to us under the memorandum of understanding if sanction was employed.

SEN. REED: But essentially, you would stop all activities. There would be no obligations or penalties or damages or anything like that?

MR. HARMON: Under the memorandum of understanding, it's a framework agreement. It outlines the program for supporting U.S. exports and there is no obligation under that framework except for transactions that have been approved by the board. So we would immediately stop any other transactions in the future.

SEN. REED: To date, the transactions you've completed have essentially dealt with investment within Russia's own production, within your own fields.

MR. HARMON: Yes, that's right. Equipment specifically for improving the efficiency of the, in this case, compressor units in operations in Russia.

SEN. REED: Let me ask you one other series of questions. This goes to the potential bond offering. It is my understanding which -- who's ever appropriate can clarify it -- there is no at present legal prohibition against an American underwriting firm like Goldman entering into a bond offering. Is that correct?

MR. HARMON: Well, I spent 38 years in the investment banking business but I never thought that when I arrived here I would necessarily get questions on that subject but I know of no prohibition that could prohibit an U.S. investment banking firm because as you may know they could do this out of London or other cities. So I'm not aware of any such --

SEN. REED: So the only real leverage we have is moral suasion about the dangers of essentially banking for the Iranians or Russians.

MR. HARMON: Well, again, I may be the only one in Washington who is not a lawyer.

And I would have to say that I wouldn't want to play lawyer at this particular time. There may be some way. I am not familiar, with the years of experience I've had there, of any such matter such as this -- (you're offering ?) foreign policy, where they could prohibit a financing being done in another part of the world.

SEN. REED: Thank you very much.

Thank you, Mr. Chairman.

SEN. D'AMATO: Thank you, Senator.

Senator Dodd.

SEN. CHRISTOPHER J. DODD (D-CT): Thank you, Mr. Chairman. And let me thank you for holding this hearing today. I think it's very valuable. This is, obviously, a very, very important issue.

And I took note of a quote of Stu Eizenstat's -- you may have, in fact, repeated yourself, Mr. Chairman. If I am repeating it, I apologize. But his comment, "There's no country whose behavior is more threatening to us and Western security interests than Iran (or ?) critical, but the dangers of Iran's efforts to acquire weapons of mass destruction are at the very top of our agenda." I think those views sort of express the sentiments of all of us. Obviously, this is a serious matter, and I thought that the former Secretary of State Henry Kissinger's comments that it's not just a matter of following the law here but that it's in our interest, and in fact, in global interests -- and I think you may have (used ?) that quote yourself earlier. It certainly expresses the view of all of us.

The complicating factors here, obviously, is how we (deal with it ?). There is a frustration in all of this. This isn't the first time we've encountered an issue like -- faced it before in South Africa and other places. And how do you rally international support?

Dick Murphy, who I think, many of us remember as being a very, very effective assistant secretary of State for Near Eastern Affairs, is quoted in an L.A. Times story this morning playing out that we've had an abysmal record on building international support in dealing with Iran. And our efforts to build (one ?) on Iraq is diminishing. I think that's a pretty accurate statement; regretfully, terribly so. And we can't seem to muster the kind of support we were able to on South Africa, and even that wasn't as much as we would have liked.

And that's no excuse, in my view, not to have this country, in my view, stand up and represent what it does to so many people whose rights are being violated and given the fact that Iran seems to be hell-bent to export its terrorism and support those efforts anywhere it can around the world, particularly where our interests are involved.

And so I am interested in seeing how we can -- if, obviously -- and I guess this a question -- I don't know if any of you here can answer this, but are we in -- is this material and so forth that would be provided through our financing -- is it pretty unique, or is there -- are there other sources -- Japan, Europe -- that Iran could acquire this material from, or this technology from, I guess, in the this case we're talking about?

Or do we have some sort of an exclusive or relatively exclusive position with regard to this? I don't who that should best be addressed to. Can anyone comment on this?

MR. HARMON: Well, it appears to be the critical equipment, so to speak, that is included in the transactions that Exim Bank has already done is very specifically for compressor work in Russia. The first transaction I referred to in 1993 was equipment from Caterpillar. There is no indication that either the so-called trucks back in 1993 or the regulatory controls used for improving efficiency in compressor units would have any other purpose other than being used in gas compressor equipment, which would be used in Russia. So that involves the transactions that have been done to date.

SEN. DODD: Right. What I'm getting at is the technology that Gazprom could provide to Iran. Is that -- is there some exclusivity on that, or is that technology available in places other than Gazprom?

MR. HARMON: Gazprom is the largest integrated gas company in the world. I would have to believe that there are many other gas companies with comparable technology all over the world. I don't think -- I'm not aware of any technology that Gazprom has myself at this time.

SEN. DODD: Well, it seems to me -- and I'm not going to take much more time. The chairman's overallotted this already with everyone here, but we have got to try and reforge, if we can, these relationships in Europe and elsewhere. We've seen them too often leave us pretty much alone on a lot of these issues. I don't think anyone doubts that if there were international cooperation on these, if we were able to get other providers to slow down and to join us in some of these efforts, we could have the desired effects of changing some behavior. At least I'm -- I know of no other course of action that's going to ultimate produce those results.

Particularly with emerging wealth in the Pacific Rim and Europe and elsewhere where technologies and information and services are going to be available, we're going to find ourselves in a situation where we're not only not doing the business, which is obviously something that certain people only care about -- I mean, the chairman doesn't only care about that. I don't only care about that. Obviously, there are much more important interests than just that. But not only we lose that, but our ability to affect policy in these countries is really the ultimate question, and are we going to succeed with this or not? And I have -- it seems to me we've got to try and figure out some different way to build some support or we're going to maybe lose on both counts in the sense of still having Iran engaged in its export of terrorism and doing so because they're getting the financing and the hardware and the resources financially and otherwise from other parts of the world who just are not going to heed our policy, or follow our policy.

So I hope some people like Dick Murphy (sp) and others I know that are struggling with this issue might help us fashion some ways in which we could -- I gather Madeleine Albright had a rather -- and I'm not asking you this, Mr. Ramsay, I'm just repeating what I've heard -- but a rather tough conversation with our allies in France and elsewhere about how we felt about all of this.

But I gather as well that these matters we're not getting, Mr. Chairman, the kind of cooperation --

SEN. D'AMATO: Well, I think the senator has identified a significant concern. I think it's absolutely unfortunate and counterproductive when the leader of a great nation and an ally makes the kinds of statements that he does.

SEN. DODD: Which one was that, Mr. Chairman?

SEN. D'AMATO: Well, that's when the French Prime Minister, Jospin, last week said that he rejoiced -- this was October 5th -- rejoiced at the news that Total had decided to thumb its nose at the Iranian-Libyan Sanctions Act. That is a rather sad commentary when we are talking about not profits, not extraterritorial legislation, but an effort, a good faith effort that we join in, in attempting to bring the community of nations together in acting in concert to deter the Iranians from the export of terrorism.

The Act provides incentives and initiatives to encourage -- and I might say to some of those media, if they took the time to explore the Act, it gives to the president the ability to recognize where there is a change of attitude and policy and position by Iran and Libya, to encourage them to act in concert as a civilized nation, recognizing the rights of others. And so it is not just a club, but it is an instrumentality of not only denying them the assets to build their military capabilities, but also to encourage their participation in the normal relations that countries should expect. And --

SEN. DODD: It's not just France, either. Wasn't it Germany has also taken a similar position?

SEN. D'AMATO: Well, they have. But when you have a leader of a country in a very prominent position act as a cheerleader for this kind of activity, it is undercutting the battle against terrorism. And as Henry Kissinger has indicated very well, that it is intended to split up the multilateral action that is necessary, and with a number of countries acting together in concert, in a rather short period of time, I believe we could make a very real difference in the manner in which countries like Iran and Libya act. But they are encouraged by those who would make these kinds of statements, to carry on as if -- and indeed, the Iranians themselves said, "Well, look at this. We now have countries who are breaking with the United States publicly."

This is not going to result in their cessation of these kinds of export of terrorist activities, building missiles systems and weapon systems when the French Prime Minister acts in that manner. This is a sad commentary. And it's about time -- and I don't believe that we should withdraw from our pursuit of these policies and goals because there may be others who are looking to make quick profits. And in the long run, as Secretary Kissinger indicated, it will be Europe itself that faces first and foremost the fundamentalist threat.

SEN. DODD: Well, they have already. You know, the bloodshed in Europe is in airports and other places, at the hands of terrorists has been pretty --

SEN. D'AMATO: And if and when the Gulf situation explodes, as may take place as a result of the Iranians feeling that there is little, if anything, that the allies are willing to do, they will be looking to the United States, as has been testified to, for intervention, for help. Their energy supplies will be hit hardest. And then what takes place? A sad commentary for those who would look to poke fund and diminish the U.S. in its leadership. Yet when there is a crisis, they look to us.

Here we are enacting a policy which the administration strongly supported, in an attempt to use economic leverage and non-military leverage to dissuade others from building and exporting weapons of terrorism and enormous destructive capability. And I think it's important that we call our allies to account for this -- for temporary greed over long-range peace, tranquility and prosperity that we seek and I think a manner that makes sense. How else do you do it?

And I would say to those who suggest that the legislation is inadequate; yes, inadequate, if indeed we cannot rally people of sensible proportions who want to protect democracy to join with us. And that is exactly what Mr. Ramsay and the administration is attempting to do.

And I believe in underscoring -- and I'm going to quote something that Mr. Ramsay said. In your statement you said, "I have just returned from Paris and Moscow where I had the opportunity to explain fully the administration's determination to implement the law."

Now, I am very heartened by that, that the administration is carrying the word, as they should, diplomatically, to our allies and to those nations who are involved in this transaction. And I think it's about time that the Russians understand that you can't be taking with one hand and undercutting us with the other. And I think the administration should have the time and the opportunity to not only ascertain whether there is a violation legally as opposed to an agreement that's been announced that may be testing the waters and that, again, is what Mr. Ramsay testified to. And, also, to let our, those countries know -- our allies and others -- that we are serious about this. In addition I'm heartened when he says he met and will have similar conversations with other nations so that they can understand, have better understanding of what these deals mean and that you will continue to provide Congress with the briefings required. And I'm heartened when I read we are not prepared to carry on business as usual with the Iranian regime and we feel very strongly that our friends and allies should not do so either and I think there comes a time and the test and it may mean that there should be, and I believe if this continues, my personal believe is there should be a total cessation of financing and funding of Ex-Im for the balance of the projects.

Now, Mr. Harmon, let me ask you, we're talking approximately $750 million under the memorandum of understanding, is that correct?


SEN. D'AMATO: And then about $153 million or thereabouts has been committed already, is that what I understand?

MR. HARMON: It's $134 million, 700,000 of financing.

SEN. D'AMATO: Okay, so out of this 750 so what you really have obligated and committed and signed contracts with is 134 million?


SEN. D'AMATO: Okay. And the rest is in abeyance. And obviously, you're not going to move forward until there is some resolve of this issue. Would that be fair to state that?

MR. HARMON: Well, there is nothing pending before us now -- nothing coming to the board at this time on the balance of the (memorandum of ?) --

SEN. D'AMATO: So I'd be fair in stating that you do not intend to move forward until you get a resolve of this matter in any event. Is that correct?

MR. HARMON: I don't think I can make that statement. At the moment, there is nothing pending for us to consider. And if you look closely at how long it took between the signing of the memorandum of understanding and the date of the first transaction -- it's from 1994 -- then the final commitment came in in late 1995, and then it was that kind of long time period before things get done. And so there's nothing pending before the board.

SEN. D'AMATO: Well, I didn't intend to go any further, but now I will. Let me ask you -- and I will. I'll tell you why -- I won't tell you why now, but you pressed my button.

I want to know. How much of the $134 million has actually been expended?

MR. HARMON: The board approved the transaction. It is a guarantee that we make to the Chase Manhattan Bank, which provides the funding -- actually, money doesn't go out of the country. I (think ?) it pays -- literally pay to the exporter, which is the Compressor Controls Corporation in --

SEN. D'AMATO: So you've informed the Chase Manhattan Bank in this particular case, that you would underwrite these transactions for up to $134 million, that you would be the guarantor?

MR. HARMON: Yeah, Chase is well aware of it. Once the board approved the transaction, Chase is aware of all the details.

SEN. D'AMATO: And are you aware of how much in the way of contract authority or monies have been drawn yet of the $134 million? MR. HARMON: I don't believe any of the $134 million has been drawn down, as you say.


Then the question is whether or not Chase should proceed with respect to that, pending the determination -- albeit I don't know -- I cannot believe, to be quite candid with you -- and this is not a determination that I am asking you to make or an assumption -- that the administration can find anything other than there has been a clear violation if indeed these transactions have been entered into, by the Gazprom and Total and the others, if indeed it is verified that they have entered into these transactions. That would clearly, clearly be a violation of this act.

Then the question is what sanctions, if any, would the president, out of the menu of sanctions, would he impose? But that's not for you to make a determination. I am not asking you to try to make that judgment. But I think most people would indicate to you that the actions on their face, if substantiated, would constitute a violation.

I'll turn to Senator Bennett. Senator Bennett?

SEN. ROBERT F. BENNETT (R-UT): Thank you, Mr. Chairman. I apologize for coming in late. Like many of us, I was triple-booked.

SEN. D'AMATO: We understand that. (Laughs.)

SEN. BENNETT: Yes. We all understand that. And I don't want to add much to the conversation, but I will share with the committee my overall impression of where we are here.

The first time I went to Israel I had a briefing with the Israeli intelligence officials, and they were going around the region and describing to me this circumstance or that. And I stopped them and said "This is interesting, but I want to ask you one question." This was closer to the gulf war than we are today. I said "What lessons did the other side learn from the gulf war?" Not what lesson were we trying to teach them, or what message did we hope they would get. "From your intelligence gathering, have you gotten into the pattern sufficiently that you can tell me what lesson was learned on the other side as a result of the gulf war?" Instantly I got the answer. He said "Oh, yes, senator. They came away saying 'Don't ever take on the United States of America unless you have nuclear weapons.' That was the lesson they learned in the gulf war."

I agree with Senator McConnell that Iran is pursuing a nuclear capability. I think they are responding to that lesson. I think they are a clear rogue state in every definition of the term.

I remember a headline I read in a newspaper that said "The Evil Empire Is Alive And Well, And Its Headquarters Are In Tehran". And I am a member of the Foreign Operations subcommittee of Appropriations whose chairman testified here this morning, a member of this committee whose chairman is making himself very clear, and I'm happy to align myself with both my chairmen on this issue. This is a very serious, serious question with long-term implications dealing with a rogue state. And we should not be lulled into complacency by the fact that there's nothing particularly menacing to the United States going on this afternoon or this weekend. We're engaged in long-term strategic activities here, and we should recognize it (in fact this morning ?).

So I congratulate you on your leadership on this issue. I want to make it clear that you can count on -- (off mike).

SEN. DODD: Mr. Chairman, I should just pose a clarification of what I asked earlier about the -- I may have left the impression that -- it was a question that the United States was in some way supplying technology to Iran. It's the Gazprom. And, of course, my question was whether or not Gazprom -- I didn't say this clearly very well -- could Gazprom obtain the technology that we're going to be providing here from other sources other than ourselves? That's -- let me say it more simply. And I gather the answer to that is yes.

MR. : Yes.

SEN. DODD: This is not so unique a technology that it is not available either in Europe or in Asia? Is that correct?

MR. : Yes. Yes.

SEN. DODD: All right. And that was my point, Bob, before you came in. I mean, I don't disagree with a thing you've just said. The frustration here is is that -- and as the chairman said it very well. I mean, he quoted the leader of France, who had a very, I think a totally irresponsible comment he made about how he reacted to the news that they were going to be -- how they're reacting to our sanctions, tell them what they were going to be doing. And I don't think he's -- he may have said it publicly. I suspect that others share his sentiments. And the frustration is here is how do we build the kind of international support for this? I don't think any of us are easy about losing business on something as important as this. But the question isn't so much whether or not we lose the business, but are we going to be able to effectuate change, and how do you do that, and how do we build that kind of international cooperation? One the things that worked in the gulf, I think clearly, was the fact that it wasn't just the United States acting alone. We had 19 or 20 nations that had troops on the ground in the gulf. And I think that message was a profound message, including troops from Arab states that joined with us in that effort here.

Here my concern is is that we're getting more and more isolated out of this issue. And we can -- you know, as all of us do, with the frustration of this in responding to it. And I don't -- and again, I'm not opposed to my country standing alone. We did for a long time on South Africa. It was virtually -- for many months it was the United States that was moving. And many said "Look, you're going to stand alone on this." Ultimately, we were on the right side of history. Others joined us. And I think we're on the right side of history on this issue. We've got to fashion some way to build a coalition here.

SEN. D'AMATO: I might add to the senator's observation that we stood alone. And we had many nations undercutting us as it related to our policy with the former Soviet Union.

And we applied the principles --

SEN. BENNETT: On the pipeline.

SEN. D'AMATO: Well, on a number, a number of issues, that we would not do business as usual -- whether it be on the pipeline, whether it be in terms of extending commercial credits; Most Favored Nation status was denied on the issue of human rights. And we had a number of allies who did not go along with us. That policy, I believe, turned the tide. We didn't do business as usual. We didn't help supply their economy. We did undertake things for humanitarian transactions -- food, grain, et cetera; we made exceptions.

What is different today? And I have to tell you that I do believe it's been a failure of administrations to reach out before a crisis -- before we reach the point where we understand that missiles are about to be launched, or the nuclear capability is really there -- to fashion a strategic policy and, indeed, to do one in such a way that we let our allies and other nations know that we're not looking for them to make economic sacrifices alone, and that we can work together in a conciliatory manner. And that is something that I think over the years we have been slow in putting together.

If there's a problem, it's not with what the administration is doing now and what the secretary is doing. And I have been briefed. And again, I am appreciative of the State Department sharing with me and with other members what they are attempting to do in galvanizing support to deal with this issue.

But I think there probably was not sufficient effort prior to this, because we knew that Total was engaging and looking to undertake this, and we knew that there would be a test of our resolve. And you've got to get out before our friends in other countries enter into these agreements and think that, "Oh, well, there'll be a little political statement that will come out of the U.S. Congress, maybe, and the White House. But -- so we'll do it and we'll just continue on." You know, I think maybe there is where we have got to work more assiduously not only in this matter, but in those matters that are critical to national security and building that kind of cooperation that was built during the Gulf War. But you've got to do it before a war comes. I mean -- and that's what we're trying to avoid.

I want to thank both my colleagues -- I want to thank Senator Bennett for his strong statement of support. Secretary Ramsay -- or Ambassador Ramsay, I want to you wish you, your mission, success. But that can only be backed up by not only yourself, but by the president letting our allies know how serious we are and how committed.

I will also say one other thing. I think it may be time to revisit ILSA, not to weaken it, but to strengthen it; to say to those who are engaged in investment banking activities, that we are going to look at those activities as well and include them in the areas that we include commercial banks. It just seems to me that we should not allow a gaping loophole, and that the president should have the ability -- if he doesn't have already -- to stop financial transactions that might otherwise be able to take place and undercut the effectiveness of any sanctions or efforts that he might bring to bear. So we will look at that. And I want those who would undertake maybe this kind of financing to know that we're going to look at it.

We stand in recess.